Company bonuses are often the best way to incentivise people to do the best they can to achieve a company goal. The goals can be anything, although they are often financially related and purely number driven; the goals themselves do not hold any ‘moral’ value.
Bonuses, in today’s world, do not take into account any interest other than that of the organisation either. As a consequence, they can be used to reward behaviour that is not necessarily in the best interest of all.
We live in a world where we expect a reward if we achieve a goal in business. This reward feeds our self-esteem, helps us to build financial security and enables us to experience or buy new things that give us a richer life.
As long as bonuses are linked to merit and achievement, we have few objections. Sometimes though, bonuses feel unjust, mainly if they are excessive towards the people receiving them.
Today, there is a clash of perspectives regarding the bonuses given in the financial sector. Bonuses of financial executives are still considered by many to be disproportionate. Privately owned banks were saved from bankruptcy with public funds and paying executives substantial amounts of bonuses, seems unjust.
However, when looking at the perspective of the executives, their bonus seems to be warranted; they reached goals that protect or grow the shareholder value, using the financial system we collectively created.
We can resolve this seemingly diametrical opposition, but it requires a leap in perspective with those working in the financial sector. If we understand that the financial system is not a goal in itself, but just a means to procure a high-quality life all people, including themselves, then the insatiable hunger for bonuses may be halted.
Unfortunately, changing perspectives of people takes a long time. Radical systemic events like wars and financial crashes or personal events like the death of a loved one can be catalysts. Without them though, we need intermediate solutions.
As long as we require a monetary incentive to perform to the best of our abilities, bonuses seem to be the way forward. As you’ll read later though, bonuses have very limited impact, suggesting that we could get rid of them and not much would change. However, for now, let us assume that we do keep purely financial bonus structures.
The question arises about how we can align them according to behaviour that takes into account the interests of all parties involved.
In theory, the answer is simple: companies can transcend their own financial shareholder value and weigh in all interests in their bonus schemes.
We can explore an example to see how this could be put into practice.
Suppose a company is profitable but it wants to restructure its organisation. As they close down a profitable entity of their company, they decide to lay off 500 people. Most of us would feel bonuses out of place in this situation. However, company boards and shareholders do use these kinds of criteria to reward their management team.
Zooming in on the different stakeholders impacted, it is clear that the shareholders are the main beneficiaries. On the other hand, the company employees on the other hand are those who are directly negatively impacted; they lose their jobs and financial security because of profit maximisation purposes.
Indirectly, society as a whole is also negatively impacted; social benefit costs increase when people are laid off.
In the case described above, we have one stakeholder (the shareholders) that profits and two stakeholders (the employees and society) who experience negative impact. A variety of bonus mechanisms can be applied, depending on the extent to which one is willing to focus on the kind of value that is created.
If an organisation focuses on the private value instead of the societal value, only a percentage of the original bonus can paid.
As we have only have one out of every three stakeholders benefiting from the action, an organisation can choose to pay only 33% of the total bonus.
The other point of view emphasises the societal value over the private value: if there is one stakeholder that is not benefiting from a company measure, no bonus is paid at all.
In his book “The surprising thruth about what motivates us”, social scientist Dan Pink shows that bonuses only make sense if people have to execute repetitive and mainly uncreative tasks.
In other types of activities, the fact that people can apply their talents and work creatively and independently is much more motivating. Bonuses in this scenario only give a quick motivational fix.
Both from a motivational and a financial point of view, this is sub-optimal. Yet, in today’s business culture, bonuses are widespread amongst top executives.
So, the questions that company owners, managers and policy makers need to ask are, “Why do we need bonuses?” and “Do we believe top talent will not be willing to work for a generous salary provided they believe in the organisation’s mission where they can grow their skills?”
Shareholders can appoint executives who are intrinsically motivated by what an organisation does rather than the potential size of their bonus.
Do you know what the irony is?
What about you? What intrinsically motivates you?
Do you know the answer to that question? If you don’t know what motivates you, you can use our Happonomy Value Canvas freely to find out.
Go check it out! And yes, it is free.string(3) "yes" NULL
You know what they say: “what gets measured gets managed”.
In our society today, economic measurements dominate the debate. We are talking about how much our economies grow, how much debt a nation has and what the employment ratio is. You may come up with some other economic metrics yourselves.
Let’s dive into the main metric we use today and explore which alternatives could work…
First, let’s look at what we measure today. At the core of the economic metrics is the Gross Domestic Product (GDP). Simply put, it is the turnover of a country or the value of all goods and services produced within a country’s borders.
To avoid confusion, this is not the production of all people with the same nationality. That is called the Gross National Product (GNP). So, foreign people living in your country contribute to the GDP but not the GNP of your country. Oppositely, your fellow countrymen living abroad do not contribute to your country’s GDP but they do add to the GNP.
The GDP initially requires correction for the impact of inflation because inflation increases the GDP without having any additional production. This corrected GDP is a metric that captures the real expansion of creation of goods and services very well.
It includes the production of consumer goods and services, government spending and even investment goods. It also discounts goods that are used as production goods for other goods (‘intermediate goods’).
1. Do we all use the same definition of GDP?
The answer is “no”.
It may come as a surprise that countries do not have a uniform interpretation of the GDP metric. Several of the G20 economies have modified their definition of what GDP consists of over the last few years, all suggesting growth of their economies.
For instance, the United States mid-2013 added a couple of variables, growing their economy by 3%, one day to the other. It may be quite valid to add R&D to the equation or even adding future pension payments. There is nothing wrong with that per se but it does render comparing economies impossible.
It is like comparing apples with bananas.
Another example is India, whose GDP grew from 4.7% to 6.9% in 2014, just by modifying the way that their GDP is calculated. Again, there is no blame to India for doing this, but it does illustrate that GDP is not an ‘absolute’ number.
Finally, in the EU, several countries also added parameters to the equation. France refused. We will not tell you what they added yet; read on to find out. So, even within the EU block, different metrics for GDP are used.
2. Do we measure GDP accurately today?
A second question one needs to ask himself is, “Even with different definitions, do we measure GDP properly?” Again, the answer again is “no”.
In order to be able to come to a correct figure, one needs to receive the correct data. This is where things go wrong. By definition, governments don’t have any reliable statistics available on underground economies. So, it is an educated guess at best.
The economic infrastructure varies vastly across the world and not every country is able to gather all numbers, as you need a generally recognised central government to be able to report all statistics.
Countries struck by civil war are already excluded as they don’t receive statistics or taxes from parts of the country. This means that countries like Syria, Iraq or Afghanistan are unable to calculate credible GDPs.
Thirdly, some components of the GDP equation are not objectively measurable.
The contribution of government services like education or health does not have an objective ‘market’ price as it is the government that regulates the wages of teachers and doctors. This means that policy decisions which are by their nature ‘subjective’, have an impact on the GDP metric.
3. Does GDP contain everything that increases quality of life?
Provided one agrees with the fact that are economy should be designed to propel us forward, does the GDP metric take into account the things we find valuable?
Once again the answer is “no”.
GDP as a metric provides an indication of output, irrespective of the fact of whether something is considered to be wanted or not.
So, the first question we need to ask is: what do we want? Only then can we create a statistic to mean something that better encapsulates what we need.
There are also some paradoxes in the GDP calculation. For instance, we do not economically value the hours we care for our children, while if we hire a babysitter or nanny this is considered to be valuable and part of the equation.
If you have children, you know how valuable spending time with them is. So why isn’t this value taken into the GDP? It is a service you provide to another person. You are just not getting formally paid for it.
This suggests a design flaw present across our entire economic system: economy is reduced to money driven transactions, not transactions that create value.
4. Does it measure what we want?
The general public is so used to hearing about GDP that we do not reflect on its contents or its goal anymore.
We need to ask ourselves the question: do we want to measure growth for the sake of growth alone? Aren’t we better of measuring that what improves our quality of life and well-being instead?
GDP does not measure fairness nor the sustainability of the actual production.
It may sound a bit cynical: GDP is better off to have environment pollution as this creates new “production”.
Prostitution and drugs
Earlier in the article, we mentioned that several EU countries had added parameters to their GDP, but didn’t tell which ones were added. Well, here it is: Did you know that recently several countries like Spain, Italy and the UK expanded the GDP metric with the production value of prostitution and drugs?
It is understandable that we measure these things for policy reasons. However, do we want the ‘value’ of these activities in our key economic metric indicating how well our economy is doing?
What would it take to have an alternative to GDP?
It is easy to be a critic, but it is probably more valuable to try to find an alternative.
Firstly, let us look at what we would expect from an alternative guiding metric. At its core it should monitor the progress of individuals and the quality of life, so we can improve it. The four key differences with GDP are that:
There are literally dozens of alternative ‘value systems’ available, both on a macro- and a micro-level. We can choose to create a new one, or work from an existing one.
To be clear, this article does not aim to state any preferences; rather, it illustrates what can be considered. Each system will very likely have its own potential flaws or differences. As long as we don’t collectively agree on all what we want to achieve, this will always be the case.
That should not be an excuse to not move forward. Take a look at what exists already!
OECD guidelines for measuring well-being – The OECD, the Organisation for Economic Co-operation and Development, has extensive policy guidelines to measure ‘subjective well-being’ in our economy.
The Prosperity Index – This has been built by the Legatum Institute for 142 countries. It looks at 8 categories and 92 parameters.
The Happy Planet Index – This was built by NEF (New Economics Foundation), a UK think-thank.
The Human Development Index – This is governed by the UNDP (United Nations Development Programme).
We are sure there are many more.
Don’t forget it all starts with just one question: “What do you want in life?” Measure that and we are well on the way.
In the mood for more food for thought?
We redesigned our money system in a way that it supports our quality of life. We call it the Sustainable Money System. Do you want to find out more about it? Go explore the model!string(3) "yes" NULL
Ever since 3D printers were invented, we have seen many new ways in which this technology can improve our lives. We have even managed to print pizza, so printing a nice and cosy home in which to enjoy our pizza seems like the next logical step. So far, several companies have managed to print whole houses or house segments using different materials. Their results are far from modest and we might be looking at the rise of an entirely new era of architecture.
Whenever this topic is discussed, the first question in everyone’s mind is, “Aren’t 3D printers incredibly slow?” Well, the printers have advanced a lot over the years and the latest models have truly remarkable speeds.
The Chinese company WinSun, recently showed that their 3D printers can build ten complete houses in just one day. These 10 by 6.6 metre houses were constructed using one giant 3D printer and minimal human workforce. In the the future, it may be possible for a single machine to make entire neighbourhoods pop up overnight.
So far, the 3D printing technology has been used to build mostly one to two storey structures, but no one is setting the bar there. Eastern China already has a six storey building made with the use of a 3D printer and, if we work out a way to introduce new materials into the printing process, building a skyscraper with a 3D printer may become a reality.
One of the best selling points of 3D printed housing is their environmental friendliness. The Chinese used industrial rubble as their main building material, while the Dutch opted for a reusable oil-based material. Printing houses might save us from producing tons of debris. The materials used for printing are also easier to transport than regular construction materials and this can be regarded as both an ecological and economic advantage.
The most shocking part about the WinSun houses is that their buildings cost about $5000 each. Their low price makes them a possible solution to housing problems worldwide. Other 3D printers which are used to build houses can also provide a price that is far below the standard construction price. Further development of this technology can provide a roof for everyone without a shelter in the world.
3D printer demonstrations have shown that even mud and wool can be used to make a shelter. The Italian 3D printer company, WASP Project, demonstrated that easily found resources such as mud and fibre can provide shelters in the impoverished regions. Their six metre high, three-armed printer can be assembled in just two hours and can print out an almost complete house. Machines of this type can be used to rapidly deploy a refugee camp or to create shelters in disaster struck regions.
Another technique that might provide fast deployment in the future is stacking. A 3D printer can produce large pieces that stack together like LEGO’s. This might not seem that safe, but with the right locking mechanism the structural integrity will not be compromised.
Adding armature in the prints is one of the main game changers that can make this technology a serious competitor in the construction industry. With armature in the mix, architects can create larger gravity-defying structures without worrying that they might collapse. In addition, armature will also make the structures safer and more durable in extreme situations such as earthquakes.
As this technology advances, we may be looking at a time when everyone will become a designer of their own home. An intelligent 3D modelling software can make designing a house as easy as starting a new game in Sims. This futuristic software platform may also offer an option to purchase or import house plans and even improve them by adding your own creative touch.
So far, we have proved that building a house with a 3D printer is possible and that it can be done for a very low price. There are many limitations as to what we may construct, but if we are looking to shelter the homeless it is a viable option. Further development of this technology may provide us with ways to construct larger homes at an even lower price.
Want more? Don’t be sad that the article is over! We got plenty of other exciting stuff to share with you. Subscribe to our bi-monthly newsletter and we’ll keep you up to date with our latest news!string(3) "yes" NULL
What if organisations would pursue value instead of money?
Not only value towards customers and investors but also, and especially, towards its employees, suppliers, the public at large and our environment?
One can debate whether or not that wouldn’t result in an economy that is more in sync with what we look for in life. The accounting system for this approach exists, it is called triple accounting.
There are other recipes though to incentivise organisations to act more responsibly. One of them is limiting limited liability.
The legal system underpinning our current economic system is built upon a tremendous fiction. Legal entities like companies are separated from the people owning and working in the organisation.
There are many reasons why this construction came to life. Probably the most important one though is to stimulate action and compensate for the fear of venturing into something new.
Human beings like you and me are built to avoid too much of a risk. Our limbic brain injects fear when we want to do something that would go against our survival and well-being.
In a way venturing in a new business also goes against this feeling of safety.
To avoid inaction out of fear, limited liability was added to a set of legal entities to stimulate risk. If things go south, one doesn’t need to worry people can take away your house. Investors lose their investment but there it stops.
If people in the organisation make mistakes, only the assets of the organisation can be used to pay for the damages.
Admittedly there are some exceptions in place such as board member liabilities which transcend that principle. Of course, we humans are so creative that we invented a type of insurance for these people to insure for these mistakes as well, basically resulting in the same outcome: you are not personally liable for the mistakes your organisation makes.
There is a lot to be said in favour of this principle. Sometimes though, the principle works against its original reason of existence and becomes an excuse for a lack of morality and decency.
People and businesses behaving unethically to earn a quick buck, shouldn’t they be incentivised more to behave in line with what we all look for?
Wouldn’t that bring more joy and peace of mind to themselves as well?
Although the idea may sound appealing in principle, implementation would be no easy feat as the devil as always is in the details. Two key issues require an answer: what behaviour would trigger exposing people to increased liability?
And as important, how much of your personal assets would be exposed? All of them?
In a humane society we obviously would not want ‘sinners’ to starve or be homeless.
Seizing all other assets like stock, personal savings, second residences and other investments might be a good place to start.
As for the behaviour, defining some practically applicable rules could provide a workable framework:
By forcing companies to adhere to the laws of the markets they operate in (and not where they are registered), companies will have commercial incentives to stay in sync with the values that underpin these societies.
To put it bluntly: if your company accepts child labour to produce their goods, you can only sell in markets where child labour is accepted as well.
One may argue this kind of framework will have an impact on prices. This may be true but is not necessarily carved in stone: in many industries labour costs are just a fraction of the total production cost, meaning the absolute impact on cost may be limited.
Secondly, a company can also chose to open up its pockets and reduce its profit margins. Societal value over financial profit.
There are some strong supporters of the idea of reducing limited liability. How about Adam Smith, the founder of modern day capitalism?
If one would want to reset the position economy holds in our societies from a goal to a means, limiting limited liability may be a recipe to stimulate ethical business.
There is another possibility if you want to start a value-driven business. Use our Happonomy Value Canvas and build your company on the values you cherish the most. Go check it out!string(3) "yes" NULL string(3) "yes"
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